Transition to a low-carbon economy: the mitigation agenda.

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Energy growth is critical for economic development and poverty alleviation. Accelerating access to affordable, modern energy for the poorest is critical to meeting the Millennium Development Goals (MDGs). There is currently a large financing gap in the energy sector--about US$65 billion a year, or about 40 per cent of the actual needs for electricity generation in the developing countries. The access problem is most acute in SSA and South Asia. For example, the current rate of new connections in SSA (less than 1 percent) is not keeping pace with new household formation (1.9 percent). Many countries particularly in SSA and South Asia are in the process of rapidly expanding their programs designed to increase energy access and the MDBs (for example, the AfDB) have adjusted their own priorities to support these efforts. However, developing countries--in line with the UNFCCC principle of "common but differentiated responsibilities'--are beginning to take action to shift their economic growth strategies to include technology and management options that will minimize GHG generation while maintaining social and economic development objectives. Recent examples include China's National Climate Change Program, Mexico's National Climate Change Strategy, and India's Integrated Energy Policy. This reflects the fact that for these and other developing countries, sustainable development, economic growth, and poverty reduction remain paramount issues. This is also acknowledged by the G-8's recent Heiligendamm communique. These actions represent an important start, but it is clear that much needs to be done.

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ENERGY EFFICIENCY

By reducing the amount of primary energy resources needed to deliver a given amount of modern energy service, energy efficiency helps to mitigate global and local environmental impacts of fossil fuels. Energy-efficiency measures are often the lowest-cost options available for a country to mitigate the impacts of climate change. Energy efficiency is also attractive, as it increases economic competitiveness and alleviates the vulnerability to disruptions in energy markets.

The EBRD has been recognized by other MDBs as a leader in promoting and financing energy efficiency, and this is a key strategic orientation of the bank's new Capital Resources Review (five-year strategy for 2006-2010) and Energy Operations Policy. The EBRD's SEI proposes to more than double the investment in energy efficiency and cleaner energy across its region of operations. The EBRD will seek to invest up to 1.5 billion [euro] in the context of the SEI over 2006-2008, catalyzing total investment of around 5 [euro] billion. Together with the development of the SEI, the EBRD has taken a number of steps to fully mainstream its energy-efficiency activities across its sector and geographic teams. This has included using the corporate planning function to fully integrate its energy-efficiency priorities into its line operations. In this connection the investment pipeline is systematically screened so as to identify energy-efficiency opportunities early in the project cycle.

The specific components of the EBRD's SEI have been defined based on a sector assessment of greenhouse gas emissions in the region, of reduction potential, of the extent and complexity of barriers to increased investment for emissions reduction, and of the level of bank experience and operational capacity. Based on this assessment, the SEI aims to accelerate the pace of direct investment in energy-efficiency projects across industrial sectors. The SEI supports the expanded reach of the bank's energy audit program for large-energy users in the countries of operations and implementation support in the form of energy management training to (a) ensure that sustained energy-efficiency gains are achieved, and (b) expand the development and implementation of sustainable energy financing facilities to small and medium-sized enterprises and to the residential sector across its countries of operations. The SEI supports market studies to identify specific energy-efficiency requirements in each target country, the development of skills in local banks to assess energy efficiency projects, and achievement of energy-efficiency savings and small renewable-energy investments.

Energy efficiency has been an important consideration in the EIB's lending since the 1970s oil shocks, though it has gained more prominence, given the alignment with the EU policy objective of achieving 20 percent reduction in energy consumption by 2020. Energy efficiency is mainstreamed into the EIB's decision-making, and most of the EIB's projects result in an improvement in energy efficiency due to the simple fact that they usually incorporate the most modern technologies. However, the EIB only seeks to justify a loan on "energy efficiency" grounds when there is significant (at least 20 percent reduction in energy consumption compared to the situation before the project was implemented. For projects with such significant EE contribution, the EIB can now finance up to 75 percent of total cost. Dedicated EE credit lines and financing partnerships are also being developed, including grouped investments in buildings and small and medium enterprises (SMEs). Technical assistance will be involved, for example, for energy audits, when funds are available. Lending to CHP and district heating will be expanded, especially in the new Member States.

The ADB has established the comprehensive CE&EP to assist its DMCs to achieve significant, measurable change in their energy-use patterns and secure a sustainable, low-carbon energy future. A pivotal component of the CE&EP is the energy efficiency initiative that was launched in July 2005 and targets to expand the ADB's operations in clean energy to US$1 billion per year.

The EEI is being implemented in three phases. Phase I, the initiation phase, was completed in June 2006 with endorsement by ADB management of the draft EEI report, which firmly establishes the rationale for expanded and sustained ADB action and energy efficiency-related investment, defines the general principles of the energy efficiency investment and action plan, and provides priorities and a framework for next steps. The ADB has identified the People's Republic of China, India, Indonesia, Pakistan, the Philippines, and Viet Nam as priority DMCs, with the potential to make greatest impact toward reducing C[O.sub.2] emissions in Asia and the Pacific. Under Phase II, which is ongoing, the ADB has been conducting consultative meetings in these countries to learn firsthand from clean energy-market stakeholders the barriers, catalyzing conditions, and immediate investment opportunities prevailing in each DMC market as a prerequisite step to local clean-energy project pipeline development. In some of these DMCs, ADB is providing assistance in the formulation of a broader strategic framework for external assistance or new legislation intended to accelerate the implementation of new EE and other clean energy projects. ADB has made available US$2.9 million to deliver the following outputs from October 2006 to December 2008: (a) country action plans and project pipelines for clean energy investments in DMCs, (b) design and establishment of Clean Energy Financing Partnership Facility (CEFPF), and (c) development of the necessary management structure and capacity building in ADB to scale-up as well as monitor and evaluate activities implemented under EEI. Work undertaken thus far under the EEI has already led to increase in the ADB's investments in clean energy. As an example, between 2003 and 2006, the ADB's total investments on energy-efficiency projects totaled almost US$685 million and the pipeline for energy-efficiency projects for 2007-2009 is almost US$1.5 billion. The ADB established the CEFPF in April 2007. It is designed to finance (a) smaller EE investments that require quick and efficient transactions; (b) technology-transfer costs of clean technologies for a small number of high demonstration impact, large interventions that will catalyze deployment of clean energy technologies; and (c) grant assistance for activities such as developing the knowledge base and incentive mechanisms, advocacy, institutional capacity building, project preparation, and establishment of the monitoring and evaluation mechanisms. The strategies and action plans will be implemented in Phase III (2008-2010).

The WBG has been active in promoting energy efficiency since the early 1990s. Following the publication of the World Bank policy paper "Energy Efficiency and Conservation in the Developing World," energy efficiency issues were mainstreamed into country policy dialogue and World Bank financial instruments were deployed in support of energy-efficiency interventions along the entire energy supply chain. For the past 16 years, the WBG has been engaged in promoting energy efficiency, having financed investments totaling US$2.2 billion for over 100 projects in more than 40 countries. The projects span all regions, with a significant concentration in Europe and Central Asia, and East Asia and Pacific, and in a few sectors, in particular the delivery of district heating and electric power services. In FY2006, the WBG committed US$490 million for energy-efficiency projects that addressed the full range of end-use and supply-side opportunities and were also designed to help remove institutional, regulatory, financial, and technical barriers.

The WBG's commitment to energy efficiency has been further reinforced through the key role it is playing in leading the global cooperative efforts to reduce GHG emissions through the Clean Energy Investment Framework. In this regard, an Energy Efficiency for Sustainable Development (EEfSD) action plan is being prepared by the Bank, designed to scale up the World Bank's energy-efficiency operations in client countries. These interventions are structured along four tracks to permit countries to take advantage of energy-efficiency opportunities in priority sectors: Track 1--Integrating Energy Efficiency within Economic and Sector Work, Track 2--Mainstreaming Energy Efficiency in Investment Operations, Track 3--Improving Internal Operational, Learning and Analytic Capacity, and Track 4--Monitoring, Evaluation, and Outreach.

The EEfSD strategy comprises interventions at three levels: (a) policy and regulatory, (b) sector and subsector and (c) end-use equipment and appliances. The emphasis is on scaling up on the demand side, in addition to continuing the work on supply-side efficiency improvements. Lighting Africa, a WBG program developed to increase access to modern lighting services in SSA, recently received the necessary funding for full mobilization. Its goal is catalytic: to mobilize the private sector to reach 250 million "energy-poor" customers by 2030 with low-cost, reliable, affordable lighting services in support of achieving the MDGs. The program is designed to facilitate the entry of efficient lighting programs as a WBG lending product, starting in FY08.

The IFC has successfully pioneered clean-energy financing through financial intermediaries with GEF and other donor support for more than a decade. Projects in Eastern Europe, Russia, China, and (soon) the Philippines rely on a combination of technical assistance and partial risk guarantees to engage local banks in clean-energy lending. This approach is being internalized by IFC's Financial Markets Group, which has set a target of US$500 million in annual commitments for such projects by 2009. IFC's performance standards require identification, quantification, and reporting of projects resulting in GHG emissions of 100,000 tons C[O.sub.2] per year (directly or indirectly through electricity consumption).

The IDB is working to mainstream energy efficiency in IDB projects. Each new project is assessed for its energy-efficiency potential. Where feasible, the IDB is offering an integrated energy efficiency program, which includes an audit as well as support for investment in efficiency measures, maintenance, and training. Such audits have been completed for projects in the water sector, various industrial sectors, and thermal power plants. The bank is also providing country-level assistance in assessing energy-efficiency opportunities in key sectors. The IDB is financing energy efficiency in water-pumping systems in El Salvador, and efficiency improvements in lighting in the residential, service, and commercial sectors in Central America and Chile. It is collaborating with commercial banks and energy-services companies on cofinancing energy efficiency in public buildings in major cities in Latin America. The IDB also is providing assistance to countries in reviewing regulatory, institutional, and financial frameworks for energy efficiency in order to create a proper environment for investments, as well as financing pilot projects for the application of emerging energy-efficiency technologies. In addition, it is working together with the World Bank and the International Energy Agency in developing energy-efficiency indicators in Brazil and Mexico in order to provide important baseline information on energy consumption and efficiency. Finally, the IDB in the past year has financed a number of projects to develop innovative business models for energy-efficiency services.

As part of the proposed Clean Energy Access and Climate Adaptation Fund for Africa (CEACAFA) program, the AfDB will progressively look at energy efficiency issues related to generation and distribution of electricity, particularly as part of its ongoing support to the regional power pools. AfDB will support clean-stove technologies, capacity-building for energy-efficiency audits and appliance-standards regulations, as well as assist in the preparation of energy-efficiency projects (e.g., energy-efficient lighting). In particular, the CECAFA will be focused on policy and regulatory issues relating to supply-side energy efficiency and demand management. The AfDB, in collaboration with the World Bank and bilateral agencies, will provide financing and technical assistance to African governments and local authorities to strengthen the efficiency aspects of energy policy and regulatory frameworks and implementation capacities. On the energy supply side, support (financing, advisory services, technical assistance, capacity building) will be provided to energy and power utilities to undertake energy-efficiency audits and devise and implement strategies to enhance technical efficiency at the generation, transportation, storage, and local distribution stages of electricity and fuel supplies. Particular attention will be paid to enhancing the efficient functioning of regional power pools, energy markets, and fuel supply systems.

On the demand side, the AfDB will promote the levying and collection of adequate user fees by utilities (including sound subsidies for poor segments of the population) as a key instrument in promoting energy efficiency and conservation. Support will be given to government efforts to set and monitor energy efficiency, safety, and health standards for appliances used in domestic and micro- to small business establishments (including agro-industry and light manufacturing).

Under the AfDB's higher education, science, and technology strategy (HEST), support will be provided for strengthening vocational training programs to generate skilled labour for proper maintenance of mechanical appliances. The Bank will support government programmes and efforts of nongovernmental organizations (NGOs) to introduce more efficient and cleaner (smokeless) wood, charcoal, and coal cook-stoves in the rural areas where households continue to rely on these sources of energy for food preparation. Also, as a demand-side efficiency measure, the Bank will finance government programs to phase out incandescent bulbs and replace them with low-energy compact fluorescent lights, and will consider extending financing on commercial terms to private enterprises keen on building production and distribution capacity for such bulbs in African countries.

RENEWABLE ENERGY 

A broad range of proven renewable energy technologies are now available of which a few have reached commercially viability and have significant potential to improve energy access in the developing countries. Bringing these small-scale technologies online in full market volumes therefore is a key priority for the MDBs. These interventions include investment support and steps to tackle a variety of policy issues designed to eliminate biases against renewables--e.g., fossil fuel subsidies and inequitable access to transmission grids. They also increasingly include more proactive support for renewables, such as promoting regulatory and policy regimes that actively encourage renewables, capacity building, identifying local renewable resources, technology adaptation, and knowledge transfer.

The World Bank has played an active role in promoting renewable energy since 1990, providing US$ 7.2 billion in financing (US$2.7 billion excluding hydropower >10 MW). In 2004, the Bank committed to increasing its lending by 20 percent each year till 2009. The Bank's renewable-energy projects are spread around the world, with a significant focus in Asia, Africa, and Latin America. The WBG's work on renewable energy is pursuing a two-pronged approach targeting: on one hand, the supply of energy in the short to medium run, and on the other hand, providing assistance to developing policy and building capacities for scale-up of renewable energy use. In FY07, the total lending for new renewable energy projects was US$421 million. Investments, policy support and training, capacity building, and knowledge dissemination are key activities to increase the use of renewable energy. Economic Sector Work (ESW) and Analytic Advisory Services (AAAs) are under way, with the support of the Energy Sector Management Assistance Program (ESMAP) to strengthen the policy and institutional frameworks for developing long-term energy development plans, including formulating laws and regulations for encouraging greater use of renewable energy. Hydropower investments will include rehabilitation of existing plants, small run-of-river plants, and multipurpose hydropower plants with reservoirs. These types of projects can demonstrate the significant impact that partnerships between the WBG, government, and the private sector can make in this effort. Box 1 below showcases three private sector-oriented WPG projects based on conventional as well as new renewable energy sources.

Reflecting Europe's early commitment to renewable energy and European leadership in much of the RE market, the EIB has been actively engaged in financing renewables for over a decade, both inside and outside the EU. The EIB has nonetheless stepped up its involvement in financing renewable-energy projects following recent EU policy initiatives. RE investments within the EU are often driven by strongly supportive national policy frameworks, sometimes entailing financial subsidies (e.g., grants and/or regulations such as guaranteed off-take prices). In 2005-2006 the EIB's lending for renewables was around 500 million [euro] annually, the majority of this within the EU. Outside the EU the largest lending area for renewables was the ACP group of countries. In the framework of its 2007/10 Corporate Operational Policy, the EIB has established challenging targets for its support for renewable-energy, and is committed to annual lending of not less than 600 [euro]-800 million [euro] for renewable energy projects. This represents a major step up of the Bank's renewables lending activity; an increase of some 60 percent over recent years. In the first six months of 2007, however, the EIB signed renewable energy loans in excess of 900 million [euro], of which 700 million [euro] was in the EU, and mobilised total investment of some 4,000 million [euro] (that is, a multiplier of 4x). A further target is that 50 percent of its lending to electricity generation will be to finance RE technologies. This has been supported by the adoption of more selective criteria for the financing of coal-fired plants and encouraging state-of-the-art technology such as carbon capture and storage.

1 World Bank Group Support for Private-Sector Participation in
Renewable Energy Projects

The WBG has a range of instruments to support
private-sector participation in renewable energy
projects: IFC lending and investment products for the
private sector, GEF, and carbon financing, as well as
Bank guarantee instruments for both debt and equity.
The following are three examples of such interventions:

The Nam Theun 2 Project in Laos is designed to supply
1,070 MW of renewable energy electricity to both Thailand
(995 MW) and Laos (75 MW). The project is sponsored by
Electricite de France, the Italian-Thai Development Public
Company Limited and Electricity Generating Public
Company of Thailand. The total project cost is estimated
to be US$1.45 billion, including contingencies, with
US$450 million of equity financing and US$1 billion
of debt. The international dollar lenders to the project
indicated that without adequate political risk
mitigation, they would not be able to support the
international lending package. The WBG and ADB
cooperated in providing the multilateral guarantees and
modest direct lending needed to bridge the financing gap.

In partnership with GEF and donor countries, the IFC
is helping local financial institutions fund RE and EE
projects in Eastern and Central Europe, Russia, and
China as part of its response to climate change. The
IFC program provides a variety of services and financial
resources to local banks and companies that invest in
new technologies. The program consists of: advisory
services to banks and borrowers on RE and EE projects;
lines of credit and IFC/GEF partial guarantees for local
banks and leasing companies; facilitating partnerships
between local banks and project developers; standardized
transactions for banks and developers. As of June
2006, a US$70 million portfolio of RE and EE projects
has been funded, including small scale hydropower,
building retrofits to improve their energy efficiency,
biomass-fired boilers, and energy efficiency in schools.

The US$108 million in IDA credits to the Indian
Renewable Energy Development Agency (IREDA) for
renewable energy financing and institutional development
support leveraged nearly US$200 million in
cofinancing from the private sector. The IREDA project
contributed to increasing renewable energy share of
power generation capacity in India from about 0.1
percent of total generation capacity in 1992 at project
initiation to 3 percent by March 2001 at project end.

With additional parallel financing from developers and
other commercial financial institutions, nearly 3,000
MW of wind, small hydro, biomass, and solar photovoltaic
power systems were in operation by March 2001,
compared to about 100 MW in 1992. By the end of the
project IREDA had committed financing of Rs 47 billion
to nearly 1,500 projects accounting for 1,720 MW.
Subsequently the Bank approved a follow-up project, the
Second Renewable Resources Development Project that
provides IREDA with financing from an IDA credit and
IBRD loan of US$130 million to support small hydro
and energy efficiency investments that leveraged an
additional US$170 million from other sources. With
additional parallel financing from the private sector,
as of March 2006 IREDA had approved 1,783 renewable-energy
and energy-efficiency projects, and committed
Re 74.5 billion in loans (about US$1.5 billion) to support
clean energy capacity of 2,707 MW that annually
displaces 1.3 million tons of coal equivalent.

New funding instruments are being developed by the EIB to address market needs for project finance for small, onshore wind farms and, increasingly, large-scale, offshore farms. The EIB has also initiated a programme of investments in privately managed investment funds as a means to provide equity funding to the renewables sector (principally wind, biomass, and solar generation, as well as biodiesel production). The first transaction under the initiative (a 25 million [euro] investment in a Spanish fund as the cornerstone investor) has been closed and others will follow in the remainder of 2007. Further transactions, with a broader geographic focus, are being actively developed by the EIB in partnership with the private sector.

One of the key objectives of the EBRD's SEI is to promote, support, and invest in the development of renewable energy capacity in the region of operations. The SEI supports legal assistance to establish the basic regulatory framework for renewable energy, technical assistance for renewable energy project scoping and environmental impact assessment, an updated technical assessment of renewable energy potential, and training for local banks and project developers.

As part of its renewed effort under SECCI, the IDB is working with countries in the Latin America and the Caribbean (LAC) region to develop strategies for low-carbon energy sources, including assessment of renewable energy potential and appropriate policy frameworks and incentives, as well as financing investments in renewable energy such as hydropower, geothermal, wind energy, rural electrification, and biofuels. A landmark study on the state of biofuel development in LAC, "A Blueprint for Green Energy in the Americas," was produced to help establish an informed approach to the development of biofuels potential, taking into account opportunities for meeting needs for energy and rural development, as well as related social and environmental concerns. The IDB is working with several countries, including Chile, Peru, Brazil, Colombia, Costa Rica, Honduras, Guatemala, Panama, El Salvador, Paraguay, and Guyana, in developing regulatory frameworks to create better scaling-up conditions and to attract private-sector investment in these areas. The IDB is also, in collaboration with the World Bank, developing a renewable energy toolkit as an operational guide and sourcebook specifically targeted to LAC. The purpose of the toolkit is to promote the development of RE projects and investments and broaden the portfolio in renewable energy.

Since 2004, the AfDB has been implementing the FINESSE' Africa programme, a Dutch government-funded initiative that seeks to increase financing of renewable energy and energy efficiency projects by the Bank, through building requisite capacity within the Bank and in the Regional Member Countries (RMCs), updating the bank's existing Energy Sector policy, and assisting operations departments in identifying and developing RE and EE projects and project components. The FINESSE program has already resulted in a number of Board-approved projects that feature a renewable energy component, such as a rural water supply project using solar water pumps in Madagascar, and solar photo voltaic (PV) for schools and boarding facilities in Uganda, as well as inclusion of a renewable-energy component (solar PV, hydropower, and grid extension) in an agricultural infrastructure improvement program, also in Uganda.

As part of the FINESSE program, an Africa-wide assessment has been made of the status of renewable energy and energy efficiency, with a focus on needed activities to accelerate investment in these areas. This study also proposes priorities for renewable energy technologies for different regions. The current FINESSE program is reaching the end of its current implementation period.

As a follow-up to FINESSE the AfDB is currently developing a broader program on clean energy access and climate adaptation (to be financed through the planned CEACAFA. The program is currently in the early stages of development, but is intended to support both public- and private-sector projects in cleaner use of fossil fuels, renewable energy, energy efficiency, carbon financing, and increasing access to energy, as well as promoting climate change and climate adaptation activities.

At the moment the AfDB has generated a substantial pipeline and portfolio of renewable energy projects, partly as ongoing investments, partly due to assistance from FINESSE and support from Danish International Development Agency (DANIDA) technical assistance. Next to a portfolio of approximately US$950 million, a pipeline has been developed including 921 MW wind-energy projects, 283 MW of small hydropower, 410 MW of cogeneration, 480 MW geothermal and over 150,000 kl/year of biodiesel projects. At the same time, in collaboration with the United Nations Environment Programme (UNEP), two important projects: (a) development of cogeneration in seven countries (Ethiopia, Kenya, Malawi, Sudan, Swaziland, Tanzania, and Uganda), and (b) development of small and medium-size hydropower in eight countries (Kenya, Tanzania, Uganda, Zambia, Mozambique, Malawi, Rwanda, and Burundi) are about to be launched. The ADB is assisting its DMCs to increase the share of renewable energy projects in the energy mix and increase access to electricity and other modern forms of energy following low-carbon path. The ADB made an investment of US$204 million in 2003-2006 in renewable energy and the pipeline of renewable energy projects for 2007-2009 is almost US$1. (1) billion. The ADB brought together several trust funds provided by the governments of Canada, Denmark, Finland, and the Netherlands to establish the Renewable Energy, Energy Efficiency and Climate Change (REACH) program. It assisted DMC in addressing policy, market, financial, and structural barriers against renewable energy and energy efficiency, and developing institutional capacity and technical capability of governments and local institutions.

DECREASING CARBON EMISSIONS FROM POWER PLANTS AND OIL AND GAS FACILITIES

In order to focus their mitigation efforts, the MDBs are also pursuing investment and analytical support designed to decrease emissions from thermal energy sources. A number of interventions are being pursued, including thermal power plant rehabilitation, transmission and distribution network efficiency improvements, upgrading of efficiency of new thermal power plants, early retirement and replacement of inefficient plants with state-of-the-art facilities, support for carbon capture and storage, gas flaring reduction, and methane release reduction.

At the World Bank, specific projects are already under preparation for thermal power plant upgrades in India and China. The EIB also has an active portfolio of power plant upgrades and, as noted earlier, has recently adopted a more stringent set of criteria concerning its financing of thermal plants generally, including upgrades and life extensions.

The ADB is currently developing a new energy strategy. This strategy will encourage DMCs to adopt available, cleaner thermal-power technologies. In this connection, the ADB will assist DMCs in collaborating with developed countries for transfer of new and better technologies that can move from the development stage to deployment stage. The EBRD's SEI supports in particular studies to recommend rehabilitation and refurbishment or fuel-switching strategies at large thermal power plants, to evaluate the potential of "clean coal technologies" for EBRD countries of operations, and to review opportunities for, and barriers to, projects that reduce gas flaring. The EBRD is already implementing power plant rehabilitation projects such as the one described below in Box 2. Given the high level of energy consumption of the large district heating networks in the cities of its countries of operations, the EBRD has also placed a particular emphasis in the context of the SEI to increase the energy efficiency of district heating operations. EIB is also expanding lending to CHP and district heating, especially in the new Member States.

The EU considers carbon dioxide capture and storage (CCS) an important option in a broad portfolio of measures to reduce C[O.sub.2] emissions. It is driving forward an initiative to accelerate the development and earliest possible adoption of CCS, working closely with the energy industry and potential technology partners, primarily through the Zero Emissions Technology Platform (ZETP), a vehicle to encourage cooperation and information sharing. The primary aims are to demonstrate the viability of those technologies, or combinations of technologies, where this is still required, to derive some initial experience with the real costs of these technologies, and to develop some regulatory and financial models for CCS. At the heart of this initiative are plans for a flagship programme of perhaps 12 industrial-scale, sustainable fossil fuel-fired power plants (including carbon capture facilities), with the associated carbon transport and storage infrastructure to be commissioned by 2015. It is intended that China and/or India should host at least one such flagship plant. The EIB is working with the European Commission and the ZETP, with particular regard to the development of appropriate financial support mechanisms for the flagship program. Given total costs, which could be on the order of US$10 billion, there will inevitably be significant recourse to market-based financial mechanisms. The World Bank's Global Gas Flaring

Reduction program (GGFR) Phase II 2007-09 focuses on high-impact flaring countries and regions such as Russia, the Middle East, and the Gulf of Guinea. Gas flaring reduction projects under preparation include the Danilovsk gas-to-power JI project in Russia and the AFAM gas-to-power project in Nigeria. The Medco Kaji gas-to-LPG demonstration project in Indonesia is undergoing validation. Brazil's Petrobras, in collaboration with GGFR, agreed to explore gas flaring reduction opportunities.

2 Azadres Power Project in Azerbaijan (2006)

The EBRD provided a US$115 million sovereign guaranteed loan to
fund the rehabilitation of Azerbaijan's largest thermal power
plant, with 2,640 MW nameplate capacity. The project will restore
plant efficiency, availability, and capacity with an extensive
refurbishment of seven out of eight units onsite, together with the
repair and modernization of the flue gas chimney and cooling water
tunnel. The plant, based in Mingechaur, provides over 40 percent of
Azeri generation capacity but operates significantly below
technical capacity, due to growing inefficiencies The project could
save over 8 million tonnes of C[O.sub.2] per annum and is seeking
qualification under the clean development mechanism. In conjunction
with the loan, the EBRD has sourced technical assistance to support
regulatory reform in the power sector.

The Clean Energy Investment Framework of the AfDB emphasizes on increased use of gas for power production and clean coal power generation. Good examples of opportunities to increase use of gas in power production are the West African Gas Pipeline project and the Nigeria Liquified Natural Gas (NLNG) projects cofinanced by the World Bank. The latter enables gas produced as a byproduct of Nigerian oil production to be exported to Ghana, Togo, and Benin

There appear to be significant opportunities for the MDBs to further leverage their collective efforts on thermal power and to help their clients achieve significant GHG reductions per megawatt. Thermal plants, particularly those using coal, will remain the principal source of power in countries such as India and China for the foreseeable future. The MDBs are therefore committed to remain focused on these issues.

METHANE CAPTURE

Methane capture as part of solid waste management programs offers one of the most financially attractive climate-change mitigation options. Methane capture option has the potential to be rapidly mainstreamed in the urban strategies for developing countries as shown in Box 3.

MDBs have initiated programs to provide analytic support for landfill methane capture programs. For example, the World Bank ESMAP program is supporting a two-phased land fill gas initiative in its Latin American and Caribbean Region (LCR). The first phase aims to assist LCR client countries to better understand the best-practice business models and institutional arrangements for development of nonconventional energy sources at large city landfills in the LCR region by means of LFG recovery and utilization systems. This would be accomplished through documentation and dissemination of best practices and sound technical guidance. The second phase aims to identify potential new projects that could form the basis of a regional Bank program and carry out pre-investment work at each site. The EIB is focusing on similar landfill as well as wastewater treatment investments, particularly in the Southern Mediterranean region.

3 Tunisia Municipal Solid Waste Management

This US$27 million IBRD-financed project assists the
Tunisian government in developing the key elements
of environmentally and financially sustainable
municipal solid waste management. The project
includes assistance to improved solid waste
management at the national and local levels and
rehabilitation of environmentally harmful dumpsites
into modern landfills with biogas collection and
utilization capacity. These actions will enable the
Tunisian government to access additional revenue
through the CDM, thus improving cost recovery
for the Solid Waste Management (SWM) sector.
Institutional support and capacity building will
support the establishment of national coordination
of the SWM sector plus a decentralized municipal solid
waste management system at the regional and
inter-municipal level focused on introducing modern
SWM management as well as measures to achieve
cost optimization and cost recovery.

The project will finance construction of a fifth
cell in the Djebel Chekir landfill (the largest landfill
in Tunisia) including the construction and operation
of a biogas management system, and nine new
landfills designed along the principles of sustainable
management of municipal solid waste in Bizerte,
Nabeul, Sousse, Monastir, Kairouan, Sfax,
Gabes, Jerba, and Medinine.

Project outcomes include institutional strengthening
of the sector, policy instruments for sustainable waste
management, introduction of a national cost recovery
system, outreach and communication to change citizens'
behaviors, and incremental revenue generation from
reductions in greenhouse gas emissions.

The IDB has developed a series of assessments of opportunities for landfill gas capture and energy generation potential, including an evaluation of waste disposal systems and landfill conditions in Central America, and initial assessments of carbon potential in specific landfill sites in the region. As a result of these assessments, the Bank is now assisting countries in the preparation of methane capture projects for financing under the CDM. The Bank also commissioned an economic assessment of methane capture and its use for energy generation, taking a wide sample of landfills across the region. This information was used as input for the development of a screening tool that is helping project sponsors in the region and project teams in the Bank carry out preliminary assessments of carbon potential in landfills. The IDB is also engaging resources in developing landfill-gas-to-energy projects with CDM components for a number of cities in Latin America.

The ADB has also supported several coalmine methane extraction and utilization projects in China. One of them is the Fuxin Coalmine Methane Utilization Project in Liaoning Province. It has improved safety conditions in the community and supplies methane to residents and nearby industries. It was seen as a viable carbon investment opportunity and through the ADB's credit marketing facility, attracted strong interest from buyers. The ADB has also supported numerous landfill gas projects, as well as methane capture and utilization projects in agricultural waste. The ADB and the World Bank are active members of the Methane to Markets Partnership promoted by the U.S. Environmental Protection Agency.

REDUCING CARBON EMISSIONS IN TRANSPORT

Estimates indicate that the transport sector contributes about 14 percent of global emissions, making this a key sector for climate-change interventions. In 2002 the transport sector accounted for 21 percent of worldwide energy consumption and is projected to generate over 60 percent of the increase in total energy use through 2025. The strong connection between economic growth and transport-generated greenhouse gases can be moderated over time by changes in travel behavior, logistics decisions, technology choices, and transport modes. These factors can, in turn, be influenced by planning, fiscal, and regulatory measures, as well as through public investments in infrastructure. The MDBs are currently reviewing their transport strategies and programs with a view to making them more climate friendly.

One of the pillars of the ADB Clean Energy and Environment Program (CE&EP) is the Sustainable Transport Initiative (STI), which will develop a coherent development framework to deliver modalities for effective and efficient transport systems. The transport sector is currently the largest contributor to greenhouse gases in Asia and is the fastest-growing sector in terms of contributions. In 2006, the ADB undertook analytical work that will lead to the formulation of a policy framework to guide investments and address energy efficiency and climate change in the transport sector in Asia. The study report, "Energy Efficiency and Climate Change Considerations for On-road Transport," represents one of the first comprehensive efforts to analyze the relationship between the transport sector and climate change in Asia over the next 25 years. The results of the analysis make it clear that even the most optimistic scenarios, which incorporate all expected technological improvements, will lead to a tripling of C[O.sub.2] emissions over this period. The study concludes that a paradigm shift, resulting in a new Asian consensus on economic development mobility, will be required to guide policy making and investment decisions in urban development and transport. To accomplish the vision, the study recommends a number of policy interventions to improve energy efficiency in transport (Box 4).

As part of the STI, the ADB is currently implementing a regional technical assistance program which will develop (a) a strategic development framework for sustainable urban transport, (b) a set of effective investment programs to support efficient urban transport systems, and (c) a set of innovative financing options. The work will also identify specific investment programs in the ADB's project pipeline and ensure the enabling environment is conducive to successful implementation. Project selection for review under the Sustainable Urban Transport project incorporates climate-change implications of mobility and includes integrated public-transport systems, BRT, urban metro, bus-route franchise optimization, traffic management and rail-based freight terminals. Parallel work within the ADB is examining revised methodologies to enhance investment decisions to fully incorporate climate-change impacts in the project evaluation process.

Phase II and Phase III regional technical assistances under the STI will be implemented during 2008-2010 and have an increased focus on energy efficiency in transport to help identify and implement needed policy updates and relevant institutional capacity building, while assisting with the financial structures of transport infrastructure and public transport systems.

4 Principal Policy Interventions to
Reduce GHG Emissions

Integrate urban reform, land use planning, and transport planning

Adopt integrated transportation systems to promote
energy-efficient modes of transport

Improve vehicle engines and fuel technology

Use fiscal measures to influence travel behavior patterns

In late 2005 the ADB initiated preparation of a study entitled, "A Roadmap for Cleaner Fuels and Vehicles in Asia," which assessed links between fuel quality and air emissions. The report will be published in 2007, and the key findings are expected to include the need for attention to integrating fuel quality and vehicle emissions standard, regulating fuel quality specifications, updating fuel refining in Asia for the introduction of cleaner fuels, and fiscal measures to ensure uptake of cleaner fuels.

The ADB has been continuously involved in the integration of air-quality management and sustainable transport into the economic and social strategies, policies, programs, and projects of its DMCs. CAI-Asia, established in 2001 with support from the ADB, has taken the sustainable urban-transport agenda forward with the Partnership for Sustainable Urban Transport in Asia (PSUTA) program and SUMA program (see Box 5). The PSUTA project undertook case studies to examine transport impacts on pollution, congestion, and safety in Hanoi, Pune, and Xian.

The World Bank is currently finalizing an update of its transport infrastructure strategy, originally approved in 2002, with a view to reducing the sector's contribution to climate change. Interventions will include (a) restraining transport energy consumption, (b) assessing and controlling transport emissions, (c) promoting shifts to low carbon modes, and (d) establishing guidelines for environmentally effective transport planning and decision-making.

5 The Sustainable Urban Mobility in Asia (SUMA) program
focuses on improving urban air quality, improving road
safety, and reducing transport's contribution to climate
change. This will be accomplished primarily through
assistance to Asian countries and cities in strengthening
the formulation and implementation of sustainable
transport policies and projects.

The SUMA program, funded by the Swedish International
Development Cooperation Authority (SIDA), is being
implemented by the ADB through the Clean Air Initiative
for Asian Cities (CAI-Asia) and in partnership with other
leading international organizations promoting sustainable
urban transport. Activities being undertaken in SUMA
include (a) a study on motorized two- and three-wheelers
in Asia and how these modes can be better integrated in
the urban traffic systems; (b) assisting the city of
Ahmedabad, India, to develop a BRT operations and
business plan; (c) how cycling and NMT can be
integrated into urban and transportation planning
of cities; (d) a capacity building program to develop
future trainers on a range of topics such as mass rapid
transit options, nonmotorized transportation planning,
transportation demand management, and financing
sustainable urban transport; (e) develop a national
framework and action plan for the Philippines
on environmentally sustainable transportation;
(f) environmental impacts of electric bikes
in China; and (g) the development of social impact
assessment guidelines that can be used for urban
transportation projects.

Several new projects designed to reduce C[O.sub.2] emissions in transport have been initiated, for example, the Karnataka State Road Transport Corporation (KSRTC) Bus Biofuel and Maintenance Program for India will support engine tuning and tire replacement, replacements of water induction kits, and the introduction of biofuels. The Trans Santiago Urban Transport Modernization Plan will support the introduction of low-emission busses--compressed natural gas (CNG), hybrid, or electric engine technologies; a clean-energy component designed to improve the efficiency of onboard engines is a central element of an inland waterway project in Bangladesh.

The EBRD is developing investment opportunities to reduce municipal infrastructure emissions with a particular focus on urban transport. The SEI supports feasibility studies and institutional strengthening (with special attention to tariff reform and measures to improve affordability), and assistance to develop Land-Use-Mobility policies and/or Sustainable Transport Strategies in various cities of the region. There is a major opportunity to build upon the significant public transport networks existing in most Eastern European cities to reduce the carbon emissions related to urban transportation.

The AfDB will focus on transport systems improvement, including the selective support of Mass Rapid Transport (MRT) investments, including low-emission bus rapid transit networks and high-speed electric-powered light rail networks, especially in mega cities such as Addis Ababa, Cairo, Johannesburg, Lagos, Kinshasa, and Nairobi. Mass transit combined with adequate road pricing and nonmotorized, transport-friendly urban planning will reduce traffic congestion and contribute to more effective vehicle and traffic maintenance and policing.

The IDB has been expanding its support of BRT systems, with over 10 operations in nine countries. The bank is preparing an additional eight BRT operations. The bank has engaged resources for the assessment of carbon reduction potential and CDM opportunities in urban transport. The IDB has also financing efforts to address key methodological challenges in building up CDM projects in urban transport (focusing on baseline development and additionality), and is now identifying carbon finance opportunities in urban transport projects in a number of mid-size cities in LAC.

REDUCING EMISSIONS THROUGH REFORESTATION AND AVOIDED DEFORESTATION 

Reduced emissions from REDD are particularly important opportunities for mitigating greenhouse gases in developing countries. Emissions from deforestation and land-use changes are estimated to account for more than a third of total emissions each year from developing countries. Using carbon markets to provide long-term incentives for curbing deforestation is widely cited as an attractive option. Progress on reducing deforestation will have both mitigation and adaptive value for developing countries.

The World Bank's BioCarbon Fund was set up in 2004 to deliver cost-effective emission reductions through carbon sequestration, while promoting biodiversity conservation and poverty alleviation. The fund is composed of two tranches: Tranche 1 started operations in May 2004, has a total capital of US$53.8 million, and is closed to further participation. Tranche 2 became operational in March 2007. Tranches 1 and 2 are mainly supporting afforestation and reforestation projects eligible under the Kyoto Protocol; however, they also support pilot projects that avoid deforestation, currently not Kyoto compliant.

In the area of avoided deforestation, the World Bank has been working closely with donor and developing countries, international organizations, and the private sector to design the Forest Carbon Partnership Facility (FCPF). The FCPF aims to assist IDA and IBRD member countries in their efforts to reduce emissions from REDD. It will work to develop new mechanisms (both market and non-market) for countries to avoid deforestation and degradation, which are not currently addressed through the carbon market. The FCPF will provide significant resources for capacity-building and technical assistance, as well as a fund for piloting incentives and the purchase of carbon assets. As of the end of September 2007, the FCPF has been approved by the World Bank Board and about 20 developing countries have expressed their interest in participating. A number of existing programs are also providing support to REDD activities, such as PROFOR (2) and FLEG. (3) In addition, regional programs such as the Pilot Program/G-7 in Brazil are intended to develop capacity for successful implementation of any program that would compensate developing countries for reducing emissions from deforestation.

Under Tranche 2 of the BioCarbon Fund, the World Bank has initiated analytical work on how to develop CDM-eligible programs for conserving soil carbon in agricultural areas and rangelands. A pilot operation is being planned to be undertaken in SSA. Agricultural wastes--from crop residues and from liquid and solid waste from livestock and industrial food production--are a significant source of GHG emissions. The Bank is supporting a broad range of projects to utilize such wastes while reducing GHG emissions, such as the use of rice husks and sugar cane bagasse for energy generation. Several related projects were prepared and contracted in FY 07 under the WB-administered carbon funds, including a demonstration in Nepal that carbon finance revenues can completely guarantee finance for biodigesters at a farm level through programs implemented at the national level.

In June 2007 the IDB organized a regional workshop on technical and scientific aspects of avoided deforestation relevant to LAC. The purpose was to gather policy makers, scientists, and NGOs from the region to enhance the understanding of the benefits of and opportunities for reducing emissions from deforestation and degradation in LAC. As a follow-up, the Bank is preparing technical assistance for countries to support the development of methodologies and capacity building on a pilot basis that will enable the use of carbon financing for lowering GHG emissions related to avoided or reduced deforestation.

The ADB is initiating work on REDD in Southeast Asia under its Greater Mekong Subregion (GMS) Core Environment Program and a planned rainforest conservation activity in Borneo. Under the GMS program, the Biodiversity Corridors Initiative is testing conservation approaches on lands outside of formal protected areas, including options for the use of carbon finance to encourage forest protection and land-use practices to reduce greenhouse gas emissions, provide local livelihoods, and conserve biodiversity. In Borneo, the ADB is working with government agencies and NGOs to develop and implement plans for conservation of remaining upland forests, including the potential application of REDD approaches attracting carbon financing.

The EIB has is actively considering possible ways in which it could intervene in this complex sector. It has contributed financially to a small but growing number of forestation and reforestation schemes. It is following the World Bank-led work on a Forest Carbon Partnership Facility, and has initiated, with a group of European private-sector entities, a joint review of the market opportunity for an ecoystems fund.

Relative to the importance of land-use change and deforestation for global GHG emissions, the MDBs' efforts in this area are still modest. However, they are committed to raise the priority of this subsector and to develop a set of appropriate interventions.

NEW FINANCIAL INSTRUMENTS AND METHODOLOGIES FOR CARBON FINANCING

All the MDBs have embarked on efforts to catalyze low-carbon investments through the mobilization of funding that can promote innovation and help fund the incremental costs of these projects. These efforts include innovative financial products and support for the further development of the carbon market.

The World Bank Group since 2000 has pioneered the carbon market and contributed to its emergence, evolution, and growth by managing a number of carbon funds and facilities, today reaching over US$2 billion in value. Based on this experience, the WBG continues to facilitate the expansion of the carbon market by continuing to act as trustee for carbon funds and facilities, developing new methodologies, and testing new approaches to structuring and financing carbon asset creation.

Two important new facilities have recently been approved by the Board. The first, the Carbon Partnership Facility (CPF), will provide funds for carbon asset development and purchase emission reductions well beyond the current commitment period of the Kyoto Protocol , emphasizing programmatic and sector-based approaches that would deliver significantly larger reductions in GHG emissions and promote lower-carbon development paths in developing and transition economies. The CPF governance structure is aimed at bringing together both the buyers and sellers of carbon assets in a partnership. Furthermore, the new facility is expected to contribute to continuity in the carbon market while international negotiations of a post 2012 regime continue under the UNFCCC and to provide practical experiences that could assist regulators in developing a legal, regulatory, and institutional framework for greenhouse gas mitigation efforts.

The second new facility, the Forest Carbon Partnership Facility (FCPF), aims to assist IDA and IBRD member countries in their efforts to reduce emissions from REDD. The FCPF will work to develop mechanisms (both market and nonmarket) to provide incentives to avoid deforestation and degradation, which are not currently addressed through the carbon market. The FCPF will include significant resources through a Readiness Mechanism for capacity-building and technical assistance, as well as a fund for piloting incentives and the purchase of carbon assets. Other innovative approaches the Bank is developing in cooperation with its client countries include green investment schemes in Central and Eastern European countries, which will channel the revenues from emissions trading to further emission-reducing activities and development of mechanisms to improve carbon price discovery through the use, for example, of auctions of emission reduction credits. The IFC is also promoting a new product, the Carbon Delivery Guarantee, to guarantee delivery of carbon credits from projects in developing countries to companies and financial institutions in industrialized countries, thereby enhancing the value for sellers while eliminating project delivery risk for buyers.

The EBRD will support the development of the carbon market in the countries of operations, in addition to establishing the Multilateral Carbon Credit Fund (MCCF) in partnership with the EIB. The SEI supports project preparation of complex transactions, climate workshops in the region, and adoption of approval procedures for projects under the Kyoto Protocol's Joint Implementation and Clean Development Mechanism.

The EIB has significantly raised its profile in the carbon sector, with three funds operational as of mid-2007, all in partnership with other MDBs, and each targeting a niche in the market. The first of these is the above-mentioned 165 million [euro] MCCF with the EBRD, the second was the 50 million [euro] Carbon Fund for Europe (CFE) with the World Bank, and the third was the 100 million [euro] EIB/KfW Carbon Programme. In addition, since early 2007 the EIB has brought together a group of European public-sector financial institutions with a view to establishing a 100 million [euro] fund that would seek to render carbon credits a more valuable and effective project-finance instrument by exclusively targeting the post-2012 stream of credits from Kyoto-compliant projects. The EIB's Board of Directors has approved its participation, and the other founder participants are expected to have their approvals in place to allow an operational launch by year end.

The Carbon Market Initiative (CMI) is one of the ADB's new initiatives under its Clean Energy and Environment Program that supports the development of clean energy, energy efficiency, and other GHG abatement projects in developing countries in Asia and the Pacific that are eligible under the CDM of the Kyoto Protocol. Most of the existing carbon procurement funds provide payment only upon project completion and when the carbon credits are delivered. As a result, many clean-energy projects face a critical upfront financing gap that prevents them from being undertaken in the first place. The ADB proposes to address these barriers through a dedicated comprehensive and integrated CMI. It has three components:

* The Asia Pacific Carbon Fund (APCF), a trust fund of US$151 million, provides upfront cofinancing for 25-50 percent of future carbon credits from CDM projects in its DMCs.

* The Technical Support Facility provides comprehensive technical support to project sponsors to develop CDM-eligible projects.

* The Credit Marketing Facility provides marketing support services to project sponsors in obtaining optimal prices and sale terms for certified emission reductions (CERs) not purchased by APCF in the open market.

The unique combination of ADB-underlying finance, upfront carbon finance, and comprehensive technical assistance aims to boost the number of projects that can contribute to climate change mitigation.

The IDB is working with public- and private-sector clients in the region to increase the number of projects eligible for carbon financing and to facilitate access of the LAC region to international carbon markets. In addition to financing the underlying projects, IDB efforts are focused on reducing transaction costs related low carbon projects (carrying out prefeasibility and feasibility studies, supporting the preparation of project documentation related to the CDM project, including development of methodology, and assisting in the marketing of CERs; promoting programmatic and sector approaches to scale-up the low carbon impacts; and lowering risks for project development and delivery). The IDB also is working with local financial entities to increase domestic and international financial flows and investment in low-carbon projects in the LAC region by setting up lines of credits, providing guarantees to loans granted by local banks, and fostering equity investment in clean-energy funds oriented to identify and develop small and medium low-carbon projects in the region.

The AfDB is planning to establish soon a multidonor trust fund dedicated to providing technical assistance to countries to expand energy access, develop renewable energy, promote energy efficiency improvements, and support climate adaptation programs, as well as benefit from international carbon financing opportunities. The CEACAFA will be a multidonor trust fund open to Africa's external development partners--governments, multilateral institutions, NGOs and philanthropies, and private corporations--with a target of raising at least an additional units of account (UAs) 5-10 million for operations in 2008-2012. The CEACAFA program is currently in the early stages of development, and will be structured in line with the recently approved trust fund harmonization and open for contributions by multiple donors.

In order to scale-up the participation of Africa in the carbon market, the AfDB is working with the World Bank and other UN agencies under the Nairobi Framework (NF) to improve coordination among the varied capacity-building activities and increase donor funding opportunities (see Box 6).

In addition to the above interventions, the MDBs are currently considering new financing facilities. For example a joint MDB and private-sector working party (see below) has identified the need for project-specific support in buying down the substantial, upfront, additional costs of precommercial technologies that have the potential to substantially reduce future growth in emissions: for example, IGCC and IGCC with carbon capture and storage technologies. A financing vehicle with multiple windows would offer tailored financing, including grants and concessional and nonconcessional lending, to best meet the needs of the project being considered. The grant element could be funded by donor countries through a combination of cash and pledges. Facilities to support long-term carbon investments through the purchase of emission reductions beyond 2012 and to help reduce deforestation are also at various stages of consideration.

6 The Nairobi Framework (NF)

in November 2006, the NF was established as an
interagency capacity-building mechanism focusing on
developing the carbon market in Africa. Partner agencies
in this framework are the World Bank, UNDP, UNEP,
the African Development Bank, and UNFCCC. The
framework builds on the work already being done by the
UN agencies, including the Bank's Carbon Finance Assist
(CF-Assist), and aims at substantially scaling up the
participation of Africa in the carbon market through
improved coordination among the partner agencies and
increased funding by donors.

As an initial activity, the partners have conducted
a mapping exercise to identify potential overlaps in
the current work, and opportunities for sharing and
complementing each other's programs. The World Bank
also has undertaken an Africa-wide assessment of
potential for carbon-mitigation projects, based on
available secondary information. in meetings organized
around SBSTA in May 2007, the partners have also
agreed upon a number of coordination measures for
sharing and enriching the capacity-building activities.

As part of the market development activities in Africa,
the World Bank has launched project identification and
preparation activities in 16 countries, and signed several
emission reduction purchase agreements, especially by
the Community Development Carbon Fund (CDCF).
Notable projects in this regard are the 85 MW
geothermal project in Kenya and the municipal solid
waste project in Durban.

Capacity-building programs under CF-Assist have been
launched in nine African countries, with a principal focus
on CDM project portfolio development and institutional
strengthening. As part of this effort, the World Bank
supported 23 host countries from Africa to participate
in the Carbon Expo, the premier event for the carbon
market, and provided them with an opportunity to
conduct project transactions with carbon buyers from
Europe and Japan. The World Bank also cosponsored
a Carbon Finance investment Forum in South Africa in
May 2007, aimed at attracting bankers and mainstream
financial institutions into the carbon market.

THE "HIGH IMPACT" COUNTRIES

In determining their country priorities, the MDBs have taken into account the differing magnitudes of CHG emissions by individual nations. For example, over half of the GHG emissions in developing countries come from the so-called G8 + 5 countries--China, India, Mexico, Brazil, and South Africa.

In this connection it is important to recognize that all the G8+5 countries have initiated work on developing low-carbon growth strategies. China has recently published its low-carbon strategy to 2010 and will now embark on lengthening that time horizon to 2030. India's Planning Commission guided the preparation of alternative low-carbon development paths published last year and plans to build upon that work to consolidate the government position by the end of this year. Mexico recently published a National Strategy on Climate Change that forms the basis for deepening the analytical work and facilitating implementation of low-carbon projects. Brazil has created a Secretariat in the Ministry of Environment for Climate Change and is in the early stages of developing a climate change strategy. South Africa established a National Climate Change Response Strategy in 2004 and is currently preparing a long-term climate change mitigation scenario due to be finalized in mid-2008. The World Bank is assisting all the above G8+5 counties in developing these strategies. Specifically, low-carbon growth studies are being currently undertaken in India, China, Mexico, and Brazil and a similar study for South Africa is expected to be initiated soon. The EBRD has been developing comprehensive approaches to major GHG-emitting countries in its region of operations including Russia, Ukraine, and Kazakhstan.

The preliminary analysis to identify priority areas for a low-carbon development path already demonstrates the unique GHG reduction potential and key sectors for each country. For example, avoided deforestation, hydropower, and biofuels appear to be some of the key areas for Brazil, whereas the oil and gas and transport sectors are important for Mexico. In the case of India, GHG reductions could potentially involve areas such as coal power plants; hydropower; energy efficiency in commercial buildings, households, and industrial sectors; transport fuel improvements; and land use changes in the agricultural sector (see Box 7). Differences in the GHG reduction opportunities for China and India are also evident, despite the large, existing use of coal, given the differences in the level of per capita consumption and access to modern fuels. The uniqueness of each country case suggests that a "bottom-up" approach is a crucial complement--for identifying opportunities in terms of country-level, sector-specific mitigation actions--to the existing broad, global-level analysis carried out in the reports discussed above.

The EIB has recently approved a multiproject facility of 500 million [euro] for China to support projects that contribute to climate-change mitigation. The beneficiaries are government agencies, municipalities, public utilities, and companies, including public- private partnerships (PPPs) that invest in projects that contribute to the avoidance or reduction of GHG emissions through the use of renewable energies, energy efficiency, or the capture and use or storage of GHG.

7 World Bank Support to Assesing "Low-Carbon" Growth Strategies
for India

The Government of India (Goi) requested that the
World Bank help assess (a) India's future GHG emissions
across various sources, (b) the costs and local benefits
of several alternative scenarios with different emission
levels, (c) the incremental costs and other barriers of
"lower carbon" growth trajectories, (d) the financial
needs in different sectors for adopting technology
options and programs, and (e) appropriate financing
instruments to meet these needs. The work, led by the
Goi's Planning Commission in coordination with the
Ministries including Environment and Forests, Power,
New and Renewable Energy, Transport, and Agriculture,
as well as agencies, started in December 2006.

The scoping phase of the study has been completed
and points to some important features of India's
economy with respect to its GHG emission performance.
Based on available data, methane emissions from
agricultural activities are the largest source of India's
current GHG emissions. India's C[O.sub.2] emissions, mainly
from fuel use, currently account for 55 percent of its
total GHG emissions, but the share is rising, as about
half of the population currently lack electricity access
and energy supply shortfalls constrain its fast economic
growth. India has been relatively successful in delinking
economic growth and energy use. Recently, economic
growth has been increasing 8 percent a year, while
commercial energy consumption has been growing
just 3.7 percent.

A new model for estimating future GHG emissions under
different scenarios and calculating marginal abatement
costs--so that the model structure, data inputs, and
underlying assumptions will be made as transparent
as possible--will be used to generate a cost-effective
strategy for further lowering the C[O.sub.2] and GHG intensity
of the economy at the macro- and sector-levels, and
identify opportunities for leveraging financial resources
needed to achieve so without compromising growth. The
study will also help formulate specific regulatory and
investment programs in a range of sectors and develop
a strengthened multisectoral program of WBG support.
The strategy will highlight the many benefits that
India can capture with a well-designed low-carbon
strategy, including energy security, rural access
through distributed renewable applications, cleaner
air in cities and homes, reduced congestion, better
waste management, and even less water-intensive
agriculture technologies.

Interim results, analyzing GHG scenarios, costs,
financial gaps, and available instruments to meet those
gaps, for select sectors--thermal power, hydropower,
energy use in building and households, and transport
fuel economy--are expected to be produced by October
2007. The full analysis and final report will be completed
by summer 2008.